One other bit of good news: Disposable personal income, which rose only 1% in Quarter 1, rose by 3.2% in Quarter 2 as the tax cut associated with the stimulus package fully kicked in. Consumer spending still dropped, though, as people who are worried about the economy socked the extra money into savings rather than spending it.

It remains politically unpopular to say so, but until the economy starts growing on its own again and employment starts to pick up, the government needs to be spending more, not less. A few brave souls are starting to talk about a second stimulus package, perhaps as an extension of parts of the original package or perhaps a standalone package. Either way, depending on the details, it’s probably a good idea. It’s also clear that direct spending has a more immediate benefit to the economy than tax cuts. That wasn’t any big secret before, but Obama had campaigned on a tax cut for 95% of American earners, and some congresscritters insisted on putting additional tax cuts in the stimulus package even though anyone with a lick of sense knew that spending had to be emphasized to give the economy any real boost.

Still, although Congress is pondering rescinding Obama’s middle-class tax cut next year to try to start getting the deficit under control, it might need to wait one more year on that. Building our savings back up a bit would provide more private capital for investment — and there’s always the chance people miight actually go out and spend some of that money if they think the economy is picking up.

Keep in mind that by virtue of becoming a bank holding company, Goldman received a total of $63.6 billion in federal subsidies (that we know about—probably more if the Fed were ever forced to disclose its $7.6 trillion of borrower details). There was the $10 billion it got from TARP (which it repaid), the $12.9 billion it grabbed from AIG’s spoils—even though Goldman had stated beforehand that it was protected from losses incurred by AIG’s free fall, and if that were the case, would not have needed that money, let alone deserved it. Then, there’s the $29.7 billion it’s used so far out of the $35 billion it has available, backed by the FDIC’s Temporary Liquidity Guarantee Program, and finally, there’s the $11 billion available under the Fed’s Commercial Paper Funding Facility.

Tactically, after bagging this bounty, Goldman asked the Fed, its new regulator, if it could use its old risk model to determine capital reserves. It wanted to use the model that its old investment bank regulator, the SEC, was fine with, called VaR, or value at risk. VaR pretty much allows banks to plug in their own parameters, and based on these, calculate how much risk they have, and thus how much capital they need to hold against it. VaR was the same lax SEC-approved risk model that investment banks such as Bear Stearns and Lehman Brothers used, with the aforementioned results.

On February 5, 2009, the Fed granted Goldman’s request. This meant that not only was Goldman getting big federal subsidies, but also that it could keep betting big without saving aside as much capital as the other banks. Using VaR gave Goldman more leeway to, well, accentuate the positive. Yes, Goldman is a more risk-prone firm now than it was before it got to play with our money. [This is discussed in a little more detail near the end of this post — Lex]

Which brings us back to these recent quarterly earnings. Goldman posted record profits of $3.4 billion on revenues of $13.76 billion. More than 78 precent of those revenues came from its most risky division, the one that requires the most capital to operate, Trading and Principal Investments. Of those, the Fixed Income, Currency and Commodities (FICC) area within that division brought in a record $6.8 billion in revenues. That’s the division, by the way, that I worked in and that Lloyd Blankfein managed on his way up the Goldman totem pole. (It’s also the division that would stand to gain the most if Waxman’s cap-and-trade bill passes.)

Since Goldman is trading big with our money, why not also use it to pay big bonuses? It’s not like there are any strings attached. For the first half of 2009, Goldman set aside $11.4 billion for compensation—34 percent more than for the first half of 2008, keeping them on target for a record bonus year—even though they still owe the federal government $53.6 billion, a sum more than four times that bonus amount. …

As for JPMorgan Chase, its profit of $2.7 billion was up 36 percent for the second quarter of 2009 vs. the same quarter last year, but a lot of that also came from trading revenues, meaning its speculative endeavors are driving its profits. Over on the consumer side, the firm had to set aside nearly $30 billion in reserve for credit-related losses. Riding on its trading laurels, when its consumer business is still in deterioration mode, is not a recipe for stability, no matter how much cheering JPMorgan Chase’s results got from Wall Street. Betting is betting.

Let’s pause for some reflection: [Goldman and JPMorgan] made most of their money on speculation, got nearly $124 billion in government guarantees and subsidies between them over the past year and a half, yet saw continued losses in the credit products most affected by consumer credit problems. Both are setting aside top-dollar bonuses. JPMorgan Chase CEO Jamie Dimon mentioned that he’s concerned about attracting talent, a translation for wanting to pay investment bankers big bucks—because, after all, they suffered so terribly last year, and he needs to stay competitive with his friends at Goldman. This doesn’t add up to a really healthy scenario. It’s more like bad déjà vu.

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More documentation of how U.S. taxpayers are getting screwed by the banking industry, from the office of New York Attorney General (and, let it be assumed, ambitious Democratic politician) Andrew Cuomo:

As one would expect, in describing their compensation programs, most banks emphasize the importance of tying pay to performance. Indeed, one senior bank executive noted recently that individual compensation should hot be set without taking into strong consideration the performance of the business unit and the overall firm. As this executive put it, “employees should share in the upside when overall performance is strong and they should all share in the downside when overall performance is weak.”

But despite such claims, one thing is clear from this investigation to date: there is no clear rhyme or reason to the way banks compensate and reward their employees. In many ways, the past three years have provided a virtual laboratory in which to test the hypothesis that compensation in the financial industry was performance-based. But even a cursory examination of the data suggests that in these challenging economic times, compensation for bank employees has become unmoored from the banks’ financial performance.

Thus, when the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well. Bonuses and overall compensation did not vary significantly as profits diminished.

An analysis of the 2008 bonuses and earnings at the original nine TARP recipients illustrates the point. Two firms, Citigroup and Merrill Lynch suffered massive losses of more than $27 billion ateach firm. Nevertheless, Citigroup paid out $5.33 billion in bonuses and Merrill paid $3.6 billion in bonuses. Together, they lost $54 billion, paid out nearly $9 billion in bonuses and then received TARP bailouts totaling $55 billion.

I haven’t had a chance to read the whole report(22-page pdf), but I hope to soon. More importantly, I hope Congress, the SEC, the Justice Department and the other 49 state AGs read it, too.

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Thursday, July 30, 2009 5:33 pm

Timothy Snyder calls for a broader, deeper and more nuanced understanding of the mass killings of mid-20th-century Europe — an understanding that places the genocidal center of gravity well east of where Westerners tend to think it belongs, and that would puncture some of the Russian martyrdom claims. Because of that, Medvedev’s Russia may try to make such an understanding a crime.

Less amusingly, Matt Taibbi and New York magazine discuss Goldman’s near-death experience this past fall … an experience it appears to have survived only because of an injection of tax money, separate and apart from the tax money funneled to it through AIG, which makes the company’s current compensation plan even less justifiable than it already was (if you can get less justifiable than “completely unjustifiable”).

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Monday, July 27, 2009 11:14 pm

I’ve got not one but two novels about a guy named Felix Gomez who goes off to Iraq a soldier, comes back a vampire and now works as a private detective, investigating nymphomaniacs (first novel) and “x-rated bloodsuckers” (second novel). (And, boy howdy, what’re those terms going to do for my hit count when the search engines get hold of ‘em?)

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Wrong, Oh, so wrong. Not now and not for years. Supply of, well, just about everything except gasoline is well outstripping demand, and demand will take years, plural, to catch up.

‘Til then? Maybe we can ponder alternatives to what we’ve been living with for the past 75 years or so — a bubble-driven economy that’s the spawn of a rigged system. First step? Audit the Fed. (Don’t be thrown by the fact that the sponsor is Ron Paul. This is a really good idea, I don’t care how crazy you think he is otherwise.)

Nick Gevers has given me the go-ahead to announce that PS Publishing plans to release my second collection, titled The Pottawatomie Giant and Other Stories, in 2011. …

In the meantine, PS also will be publishing my new novelette, The Night Cache, as a standalone volume this winter, the 2009 Christmas gift to Postscripts subscribers — though non-subscribers can buy copies as well. The Night Cache is squarely in that fine Christmas tradition of the supernatural lesbian geocacher codebreaker romance. …

Finally, the second edition of my 2005 non-fiction book Alabama Curiosities, which made me world-famous in Alabama, is newly published by Globe Pequot Press. It includes lots of material not in the first edition. …

“The Dragaman’s Bride” is being published this fall in the Ace anthology The Dragon Book, edited by Jack Dann and Gardner Dozois.

In my naivete and general ignorance of the subject of finance, I had hoped that the reason no one was talking about those growing problems was that they weren’t growing, and maybe that they weren’t even problems, even as the “for lease” signs proliferated in Greensboro storefronts.

The disappointing second-quarter results for two of the largest lenders and investors in office, retail and industrial property across the US confirmed investors’ fears that commercial real estate would be the next front in the financial crisis after the collapse of the housing market.

The failing health of the $6,700bn commercial property market, which accounts for more than 10 per cent of US gross domestic product, could be a significant hurdle on the road to recovery.

Ah, crud. I had really been hoping not to read a sentence anytime soon containing both “collapse” and “commercial real estate.”

Odd: This account has Obama saying the original call to withhold came from the Secret Service. I can see not releasing visitor names in advance of the event for security reasons, maybe. (Although why should health-care execs’ White House visits not be just as telegraphed as are visits by, say, college sports national champions?) But once the event is over, it shouldn’t be any of the SS’s business whether the names are released.

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Monday, July 20, 2009 8:43 pm

I wasn’t going to say anything about Walter Cronkite because I figured my recollections were no different from those of many other people my age and he didn’t have any particular influence on my decision to go into journalism or how to do that job once I got there.

But Teh Stoopid historical revisionism has reared its ugly head, suggesting that the U.S. news media in general and Walter Cronkite in particular lost the Vietnam War for the U.S. Cronkite comes in for special criticism because of his special commentary of Feb. 27, 1968, at the time of the Tet offensive by the Communists against U.S. and South Vietnamese forces. Cronkite said the war was lost, and that’s what caused America to turn against the war effort.

Only, first of all, Cronkite didn’t say that. On the basis of his own reporting in Vietnam, here’s what he did say:

… to say that we are closer to victory today is to believe, in the face of the evidence, the optimists who have been wrong in the past. To suggest we are on the edge of defeat is to yield to unreasonable pessimism. To say that we are mired in stalemate seems the only realistic, yet unsatisfactory, conclusion.

So, those folks who claim Cronkite said we lost Tet (or that the VC won) or were losing the war are lying, plain and simple. Or else misinformed, but this passage has been in the public record for 41 years so people who are misinformed are running out of excuses.

As we were reminded on the occasion of the recent death of former Defense Secretary Robert McNamara, people in the highest levels of government had concluded long before Tet that the war wasn’t winnable. Walter Cronkite never said anything that McNamara hadn’t already said, at least to himself, years before.

And keep in mind that the immediate events that prompted Cronkite to look into all this in the first place had nothing to do with whether we won, lost or tied in the Tet offensive. The issue was that the Tet offensive happened at all — despite strong reassurances from our government and military that the enemy was incapable of any such thing.

Some of the anti-media types are arguing that given the change of command and approach post-1968, we might well have won the war if we’d hung in there long enough. I think that’s by no means certain, but let’s assume for the purpose of discussion that it is true. So what? We won the Mexican-American War and the Spanish-American War, but there’s damn good reason to think neither of those wars should have been fought, either. Being winnable doesn’t make a war right. Besides, the government had told so many lies to the American people by 1969 that even a guarantee of a slam-dunk would have been an extremely difficult proposition to sell to the American people … and rightly so. (Cronkite delicately called the government liars “the optimists who have been wrong in the past,” because of which you can credibly argue that he even pulled his punches a bit.)

The bigger problem is that we never should have been in that war, in the role we were in, in the first place. The Vietnam War arose out of the post-World War II anticolonialist movement against France … whom the U.S., mistakenly, backed. The Communist leader Ho Chi Minh actually approached the U.S. for help, and if you want to talk about what might have been, think about what might have happened if we had not supported the French so strongly for so long, if we had looked, perhaps, for a way to co-opt Ho instead of fighting him.

As for these people who seem to think journalists shouldn’t be allowed to report indepenendently on the military, I must ask the same question I’ve been asking since the issue first arose during secret military operations during the Reagan years: What is it about the freedom to know and report on what our government is doing that makes these people want to make that into something it isn’t? What is it that scares these people into wanting to piss away the rights so many of us fought and died for?

What is it that makes them hate America?

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Between the steering of vast amounts of wealth to Goldman Sachs and a few of its ilk and the widespread deflation in the value of assets owned by most ordinary Americans, we may well be on the road to an ugly and irreversible new reality.

Commenter R U Reddy at Hullabaloo thinks this will all play out this way:

As to the [Goldman Sachs] bonuses, I suspect the bonuses are a tiny fraction of the total bailout. Most of that money has been/is being warchested for when the Depression pushes all levels of government into such profound insolvency that all levels of government are “forced” to sell off all our public assets for nominal fees to the bailout barons. The plan is for an engineered Soviet collapse and grand Yeltsinian ripoff. I have called it Plan Yeltsin for America.

It’s entirely possible that the wealth concentration won’t stop with public assets. The largest surviving commercial banks generally still aren’t in nearly as good a shape as the government wants us to think — those toxic mortgages and related securities are still on their books. Eventually they’re going down, and a lot more people will lose their jobs. The wave still hasn’t crested yet on the commercial real estate market, too.

So what happens? Massive deflation of assets, after which those few with the cash buy up lots and lots of assets — real property, businesses, certain kinds of investments — for pennies on the dollar in a massive continuation of the upward transfer/concentration of wealth that began with the Reagan tax cuts and the ’83 Social Security deal.

Might not take that long, either. We could really be a Third World plutocracy/kleptocracy inside of a decade. And absent armed revolt, that change would be irreversible.

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Sunday, July 19, 2009 11:02 pm

We dropped Hooper off today for his first stay at sleep-away camp. Coincidentally, his cabin mates include a guy he knows from school and a guy he knows from church, but he’d have been happy in a room full of total strangers — he was really jazzed about this. In fact, he was so jazzed that he stopped bouncing off the walls at one point just long enough to say to one of his counselors, “I’m overreacting, aren’t I?”

Saturday, July 18, 2009 7:30 am

Back in March I wrote about the case of a 9-year-old girl in Brazil who underwent an abortion after being raped by her stepfather and becoming pregnant with twins. Specifically, I invited Archbishop José Cardoso Sobrinho and his superior, Cardinal Giovanni Battista Re, to go to Hell for excommunicating the girl’s mother and her doctor for their role in the case — and for not saying a word, at least not publicly, about the rapist. (If the girl had been 18 or older, she’d have been excommunicated, too. Thank God for small favors.)

In a tucked away “clarification” published on page 7 of a recent edition of L’Osservatore Romano, the Vatican produced a document that unequivocally confirmed automatic excommunication for anyone involved in an abortion — even in such a situation as dire as the Brazilian case.

Sobrinho’s position all along has been that he was just stating church doctrine, not actually doing the excommunicating himself, as if that makes a difference. Now Pope Benedict, through the Vatican’s print mouthpiece, is doing the same. Oh, no, it’s not us — it’s the doctrine.

Shorter Benedict: Am I my sister’s keeper?

Since the church feels compelled to be so morally obtuse, let me help it out.

First, the “doctrine” makes a mockery of how Jesus commanded us to treat one another. Second, Benedict, knowing this even if he won’t say it publicly, could change the doctrine anytime he wanted. Third, for Benedict’s underlings to simply point to the doctrine rather than carrying out their duty to try to get the pope to change it is an unjustified abdication of their Christian duty to their fellow human beings. Fourth, if the Pope is infallible, then the Fall never happened and there was no need for Christ to come in the first place.

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who’s Who of Goldman Sachs graduates. …

But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

The bank’s unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere — high gas prices, rising consumer-credit rates, half-eaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you’re losing, it’s going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it’s going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth — pure profit for rich individuals.

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They’ve been pulling this same stunt over and over since the 1920s — and now they’re preparing to do it again, creating what may be the biggest and most audacious bubble yet.

He has followed up that article with this blog post, explaining how Goldman’s incredible 2Q profit of $3.44 billion, and its earmarking of $11 billion for employee compensation, wouldn’t exist without the enforced generosity of the American taxpayer.

That’s bad enough. What’s even worse is that the company is now taking more of the same kinds of lunatic risks that led to this financial collapse in the first place, as illustrated by this chart of Goldman’s daily Value at Risk. Note that the phrase “reduce its leverage” in the chart probably should be enclosed in irony quotes:

Taibbi summarizes:

Taken altogether, what all of this means is that Goldman’s profit announcement is a giant “[screw] you” to the rest of the country. It is a statement of supreme privilege, an announcement that it feels no shame in taking subsidies and funneling them directly into their pockets, and moreover feels no fear of any public response. It knows that it’s untouchable and it’s not going to change its behavior for anyone. And it doesn’t matter who knows it.

This is the economic equivalent of war profiteering, but as Taibbi points out, given Goldman’s role in creating the financial crisis, it’s also as if Goldman started the war from which it is now profiteering.

These are your tax dollars at work, folks, and if you don’t raise holy hell with your congresscritters, you will never see them again.

Tuesday, July 14, 2009 8:06 pm

Fred has been asking me for some time to blog about Gerald Walpin, the AmeriCorps inspector general who was abruptly fired by the Obama White House after reporting that Sacramento Mayor Kevin Johnson had misused AmeriCorps funds.

I’ve read things he has sent me as well as documents obtained by The Washington Post (which, I’ll quickly grant, may not paint the full picture). Here are my thoughts:

In the greater scheme of things, it’s a penny-ante case, and in the context of things like bricks of cash going missing in Iraq, to say nothing of torture and warrantless wiretapping and Goldman Sachs’ screwing of the American taxpayer, it’s therefore hard for me to care about this case in and of itself. It shouldn’t be, but it is.

Questions of the merit of the firing aside, the way in which the firing happened appears not to have followed legally required procedure with respect to both notice and stated reason for the firing. This much, at least, definitely bothers me. I’m a big fan of due process.

In the bigger picture, which is where I start to get more interested, I’m also a big fan of independent oversight. Inspectors general need to be able to do their job without interference to serve the taxpayers’ interests, especially when there’s big money at stake. (They have a corresponding obligation to be not only thorough but also apolitical and dispassionate. They also need a sense of context and perspective. I don’t think Walpin’s behavior was political, but he appears to have had some trouble with the dispassionate part. The context and perspective issue is less clear. There may be room for reasonable people to disagree on that; otherwise, I’m pretty sure the U.S. attorney, like Walpin a Bush holdover, would have filed charges against Johnson.) There’s a bill, HR 885, that has passed the House and been sent to the Senate, that would make some IG positions appointable by the president and subject to Senate confirmation, rather than being appointed by the departments they’re supposed to oversee, as is now the case. Neither system is perfect. Presidential appointment would give the IG more independence, but if any problems are discovered that lead to the president, it creates a sticky wicket there, too. OTOH, these IGs could only be fired by the president, and any such firing likely would get a lot of attention, as Walpin’s has, so a president would need a very good reason and/or a very high tolerance for political criticism to fire an IG.

In the bigger picture still, we need more government oversight, not less. We’ve tried to get by with less for the past decade or so, and we see where that has gotten us — pooch-screwing in a large number of areas.

If Walpin was fired for no good reason, he should get his job back if he wants it. If he was fired for legitimate cause but not through appropriate procedure, then the appropriate procedure needs to be followed and he should get back pay through the new firing date. And in the bigger picture, we need people with the ability, willingness and independence to hold government accountable — past, present and future.

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Apparently a liberal blogger was on MSNBC a day or two ago and used a rude phrase for oral sex on live TV and both her TV hosts and others in the media got a case of the vapors about it.

Thing is, her larger point was accurate: Bill Clinton was impeached for oral sex and/or lying about oral sex with someone not his wife. Far worse crimes were committed by the succeeding administration, crimes that resulted in hundreds of thousands of deaths, and no one was held accountable.